Friday, October 09, 2009

Alan Blinder says that the amount of offshoring that the US is likely to
experience in the future can "be handled by the market system – with some help
from government." This seems to back off a bit from his earlier estimates of the consequences:

On the
measurability of offshorability, Alan S. Blinder, Vox EU: Although
overshadowed by the financial crisis and the world recession right now, the
debate over offshoring – that is, outsourcing work to foreign (often poorer)
countries – seems poised to stage a comeback as a public policy concern in the
not-too-distant future. Indeed, with so much protectionist talk and some
protectionist action in the air, fear of offshoring may force its way back onto
the policy agendas of the US and other rich countries sooner than we think.

It seems axiomatic that both the economically appropriate and the politically
feasible policy responses to offshoring should differ depending on whether the
share of the workforce holding offshorable jobs is, say, 2%, 25%, or
75%. In the 2% case, we should probably ignore offshoring as a detail of little
consequence. In the 75% case, we should perhaps be seeking radical solutions to
the manifold problems caused by massive job dislocations. But if a number nearer
to 25% is more plausible, as argued here, the situation probably calls for
certain marginal (and some not so marginal) policy adjustments – but certainly
not panic. Thus it seems important to obtain a rough empirical handle on this
number, slippery though the concept of offshorability may be.1

Several attempts have been made to estimate this fraction in recent years.
Unfortunately, they ... present a
distressingly wide range – from 11% to 38%. Can we do better?

Estimating offshorability using individual surveys

In a recent paper, Alan Krueger and I employed standard survey methods to assess
the offshorability of each job in a random sample of US workers (Blinder and
Krueger 2009). Moving to the individual, rather than the occupational, level is
important because substantial heterogeneity exists within many occupation groups
(Blinder 2009a). (For example, some accounting services are offshorable, while
others are not.) In addition to improving accuracy, the other major purpose of
our research was to see if we could develop a technique that could be used in
standard labour force surveys, such as the Current Population Survey (CPS) in
the US. We think we did.

Using a specially-designed telephone survey, which Princeton University’s Survey
Research Center put in the field in June and July 2008, we experimented with
three different ways to measure offshorability. In the first, professional
coders used the answers to standard CPS questions to rate the offshorability of
each person’s job. In the second, respondents essentially classified their own
jobs by answering a single question about the need for face-to-face contact
and/or physical presence on the job. (Both attributes indicate an inability
to move the work offshore.) In the third, we used the answers to a series of
questions on face-to-face contact, the ability to deliver one’s work from a
remote location, etc. to create our own index of the offshorability of each job.

Strikingly, and surprisingly, all three measures agreed on the overall macro
number – roughly speaking, 25% of US jobs are offshorable. At the micro level,
the three measures agreed on the classification (offshorable or not) of a
specific person’s job in 70% to 80% of all cases. In studying the detailed
responses, we concluded – not surprisingly – that professional coders provided
the most accurate assessments of offshorability. That is encouraging news
because it implies that the Census Bureau in the US and similar agencies in
other countries could easily start producing data on offshorability on a routine
basis – probably without changing their survey instruments much, if at all.

In terms of major substantive results, we found that more educated workers
appear to hold somewhat more offshorable jobs and that offshorability does not
have many statistically significant effects on either wages or the probability
of layoff. Perhaps most counter-intuitively, we found that routine work, in the
sense defined by
Autor
et al. (2003), is no more offshorable than work that is not routine.

Policy implications

What might our estimate that roughly 25% of US jobs are, in principle,
offshorable imply for public policy?

1. First, saying that 25% of all current US jobs are probably offshorable is not
the same as predicting that all these jobs will, in fact, move offshore.

For example, even today, after decades of offshoring of manufacturing jobs,
nearly 10% of American workers still work in the manufacturing sector. Virtually
all of their jobs are offshorable in principle, but they have not actually gone
offshore. So the requisite labour force adjustment will almost certainly be less
than 25 percentage points. It will also take place gradually, over decades, as
did the relative shrinkage of manufacturing employment between 1960 and today.

2. Second, the 25% estimate is roughly the same as the number of jobs – then
almost exclusively in manufacturing – that were probably offshorable in the
heyday of US manufacturing (around 1960).

The relative shrinkage of the manufacturing sector in the US (and elsewhere)
from about 30-35% of total employment then to under 10% now was somewhat
painful, especially in places where manufacturing was concentrated; it fostered
some protectionist sentiment and some protectionist measures, and it induced a
variety of other ill-considered policy responses. But, broadly speaking, the
adjustment did not precipitate any major economic or social convulsions. This
experience suggests that a similar-sized labour force adjustment can, once
again, be handled by the market system – with some help from government.

3. Third, most of the policy responses that would best prepare the workforces of
the rich countries for the coming wave of offshoring are conventional and not
very controversial.

I refer to policies like more job retraining, bolstering the social safety net
where it needs bolstering (mostly in the US rather than in Western Europe), and
improving trade adjustment assistance and extending it to services. The
unconventional – and therefore more controversial – policy responses may need to
come in the primary and secondary educational system.

Primary and secondary schools, though well-designed to turn out factory workers
for the industrial age, has not adapted very well to the information age and to
the likelihood of large-scale offshoring in the service sector. I address how it
might do so in Blinder (2009b). In a nutshell, I argue there that our schools
will have to put more emphasis on communication skills, interpersonal contact,
and creative thinking – and far less on rote memorization.

Footnotes

1 I define “offshorability” as the ability to perform one’s work duties from
abroad with little loss of quality.
2 For details on the three measures, see Blinder and Krueger (2009), pp. 13-22.

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"25% of US Jobs are Offshorable"

Alan Blinder says that the amount of offshoring that the US is likely to
experience in the future can "be handled by the market system – with some help
from government." This seems to back off a bit from his earlier estimates of the consequences:

On the
measurability of offshorability, Alan S. Blinder, Vox EU: Although
overshadowed by the financial crisis and the world recession right now, the
debate over offshoring – that is, outsourcing work to foreign (often poorer)
countries – seems poised to stage a comeback as a public policy concern in the
not-too-distant future. Indeed, with so much protectionist talk and some
protectionist action in the air, fear of offshoring may force its way back onto
the policy agendas of the US and other rich countries sooner than we think.

It seems axiomatic that both the economically appropriate and the politically
feasible policy responses to offshoring should differ depending on whether the
share of the workforce holding offshorable jobs is, say, 2%, 25%, or
75%. In the 2% case, we should probably ignore offshoring as a detail of little
consequence. In the 75% case, we should perhaps be seeking radical solutions to
the manifold problems caused by massive job dislocations. But if a number nearer
to 25% is more plausible, as argued here, the situation probably calls for
certain marginal (and some not so marginal) policy adjustments – but certainly
not panic. Thus it seems important to obtain a rough empirical handle on this
number, slippery though the concept of offshorability may be.1

Several attempts have been made to estimate this fraction in recent years.
Unfortunately, they ... present a
distressingly wide range – from 11% to 38%. Can we do better?